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Pound Struggles in Volatile Trade on Myriad of Brexit Headlines

(Bloomberg) -- The pound oscillated between gains and losses in volatile trading as the market faced competing headlines about Brexit prospects.

Sterling is struggling to hold on to a rally this week spurred by comments from European officials on the potential for a Brexit deal within weeks. European Commission President Jean-Claude Juncker rejected the U.K.’s plans for Britain to stay in “parts” of the single market after it leaves the bloc, but said he would work “day and night” for a divorce agreement.

“The rhetoric of the EU officials should be seen as the realistic odds of a ‘no-deal’ Brexit,” said Viraj Patel, currency analyst at ING Groep NV. “In the U.K. -- Theresa May’s feeble leadership -- is superficially heightening the odds of a no-deal Brexit.”

The currency earlier weakened after pro-Brexit lawmakers in the Prime Minister May’s Conservative Party were said to have spent several hours Tuesday night discussing ousting her because they think she’s betraying their vision of a clean break from the EU. ING thinks the Tory infighting won’t turn into political paralysis, and recommended buying sterling on dips below $1.30.

The pound was down 0.1 percent at $1.3024 by 11:17 a.m. in London, after a low of $1.2993. Overnight volatility jumped as much as 719 basis points to a high of 17.07 percent, while the three-month contract -- covering a potential EU summit in November -- rose 21 basis points to 9.84 percent, the highest since February.

The U.K. and EU were said to prepare for a special summit to sign a Brexit deal in November and the meeting could be announced within days, according to people familiar with the matter.

Traders will next be watching for direction from the Bank of England, which announces its policy decision on Thursday. While the BOE is widely expected to hold interest rates following August’s hike, any hawkish-sounding communication may support the pound as money markets are not pricing another move until the end of 2019. The yield on U.K. 10-year government bond was one basis point lower at 1.49 percent.